Stockholders' Equity

3 Months Ended

Mar. 31, 2018

7. Stockholders’ Equity

Equity Incentive Plans

The following table summarizes the stock option activity for the three months ended March 31, 2018:

	Number of Options Outstanding			Weighted Average Exercise Price Per Share
Balance as of December 31, 2017		1,130,016			44.65
Options granted		1,175			89.80
Options exercised		(290,593	)		38.25
Options cancelled and forfeited		-			-
Balance as of March 31, 2018		840,598			46.93

Stock options granted during the quarter ended March 31, 2018 was not material. As of March 31, 2018, there was $4.7 million of unrecognized compensation cost related to stock options granted. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.31 years.

The following table summarizes the restricted stock unit award, or RSU, activity for the three months ended March 31, 2018:

	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Balance as of December 31, 2017		3,622,824			58.35
Granted		1,282,753			89.71
Vested		(580,950	)		56.00
Cancelled and forfeited		(93,590	)		64.85
Balance as of March 31, 2018		4,231,037			68.04

In January 2018, the Company granted two-year performance based RSUs with grant date fair value of $4.6 million. The Company recorded the related stock-based compensation expense based on its evaluation of the probability of achieving the milestones of all of the outstanding performance-based RSUs at each reporting period.

The Company also granted three-year vesting market-based RSU in January 2018 with grant date fair value of $1.6 million. This market-based RSU will vest if: (i) during the performance period, the Company’s total stockholder return is equal to or greater than that of the industry index set by the Compensation Committee of the Board of Directors; and (ii) the recipient remains in continuous service with the Company through such vesting period. The fair value of the market-based RSU was determined by management using the Monte Carlo simulation method which took into account multiple input variables that determine the probability of satisfying the market conditions stipulated in the award.

As of March 31, 2018, there was $256.0 million of unrecognized compensation costs related to RSUs. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.58 years.

Stock-Based Compensation

The following table presents the detail of stock-based compensation expense amounts included in the condensed consolidated statements of operations for each of the periods presented:

	Three Months Ended March 31,
	2018		2017
	(in thousands)
Cost of revenue	$	836	$	681
Research and development		18,508		15,066
Sales, general and administrative		9,120		8,048
	$	28,464	$	23,795

The total stock-based compensation cost capitalized as part of inventory as of March 31, 2018 and December 31, 2017 was not material.

CAVIUM, INC. 10-Q